Let us pretend for a moment that entry-level salaries provide a living wage. In order to write a piece on saving, I need to assume you have enough income to save. If you are struggling to meet your basic necessities like food, transportation and shelter, there isn’t a need to focus on saving – just survival. For those of you blessed to have money left over to cover wants in addition to needs, let’s talk.
What should I be saving for?
Personal finance experts recommend building an emergency fund, a stash anywhere from $1,000 to 12 months of your salary. While this is sound advice, it can feel unreasonable or unnecessary. Only you can decide what you need to save for. Personally set goals are easier to accomplish and more fulfilling. Yes, having an emergency fund with 6 months worth of your salary in the bank would be awesome, but maybe you have other priorities. For example: saving for graduate school, your wedding, a vacation, a new apartment, an iPad, etc. The first step to successfully saving money is by taking a look within and deciding on what you want to save for and why it is important to you.
How much should you save?
Always always always save more than you need. Saving more than you need provides piece of mind. If you were saving for a specific item, having more than you need allows you to purchase additional accessories or an upgrade. If you are saving for a life event like graduate school or your wedding, I can guarantee that there will be additional unanticipated costs. If an emergency fund of 3 months was your goal, once you’ve reach it change the goal to 4 months. How much you should save is dictated by your predetermined goal; just remember more is always better.
What’s an easy way to manage savings?
Online only savings accounts typically have higher interest rates and are easy to manage. I recommend having a separate account for savings that is not linked to your everyday checking account. This will prevent you from dipping into your savings every time your cash flow gets low but instead having to think ahead in order to transfer funds. Managing your savings can be easy as setting up an automatic deduction of your paycheck to go into your separate account. If your monthly expenses are predictable and consistent, setting up something that happens automatically works well, think of it as: set it and forget it.
An additional option is to set up specialized accounts that allow more savings opportunity based on your goal. For example, if you are saving for graduate school, a 529 account may be more beneficial than a traditional savings account because it provides a tax benefit and allows you to invest in mutual funds.
More Ways To Save
If you are unable to set aside a fixed dollar amount to save on a consistent basis, there is still hope. Below are a few creative ideas:
- Dinner plans with a friend got canceled? Put the money you thought you were going to spend on dinner into your savings account.
- Went out to buy a piece of clothing and had the pleasant surprise to find it on sale? Put the unexpected savings in to your savings account
- Someone paid you back for something that you weren’t expecting? Place the money in your savings account.
- Went out to buy a pair of shoes but the store is out of your size and sold out online? Place the money you intended to purchase the shoes with into your savings account.
- One of your regular was bills less than you budgeted for one month? Place the extra cash into your savings account.
A lot of money experts will advise giving up something in order to save like making coffee at home instead of going to Starbucks. Giving up your coffee or brown bagging your lunch may not be convenient for you, or you may be already doing these things and still want to find ways to save. Through the five examples above I highlighted less traditional ways to save.
Remember every dollar counts and gets you one step closer to your goal.
What non-traditional ways have you come up with to save?